The coupling of regional banks continues, this time in a deal that reaches from the Northern Neck, through Richmond and down to the Tri-Cities.
The holding companies of Kilmarnock-based Bank of Lancaster and Petersburg-based Virginia Commonwealth Bank this morning announced a plan to merge the companies in a transaction that would create a nearly $800 million institution that would move its headquarters to Richmond.
Upon closing as expected in April, the combined banks would have 19 branches that will operate under the Virginia Commonwealth Bank name. Bay Banks will be the surviving name for the holding company.
The heads of the two banks will remain, with Bay Banks President and CEO Randy Greene serving as vice chairman and CEO of the combined bank and holding company, and VCB CEO Frank Scott serving as chairman of the holding company and president of the bank.
The deal, like many others in the recent wave of bank consolidation in Virginia and beyond, was fueled by a desire for scale to combat tighter margins and an increasing cost of doing business.
“It’s an efficiency deal,” Scott said. “Regulatory issues continue to rise and overall costs of business continue to rise.
Scott and Greene got the idea going with breakfast meetings and things got more serious over the last six months.
“This wasn’t a deal that was packaged up and brought to us; this was two CEOs getting together,” to what they thought was best for their respective organizations, Greene said.
While the deal is structured as a merger of equals, Bank of Lancaster parent company Bay Banks of Virginia will acquire VCB parent Virginia BanCorp. Shareholders of Virginia BanCorp will receive 1.17 shares of Bay Banks stock for each of their shares. That pegs the value of the deal at around $29 million.
Bay Banks shareholders will own 51 percent of the combined company with Virginia BanCorp shareholders owning the remaining 49 percent.
It brings together Bank of Lancaster’s $468.27 million in assets with VCB’s $323.61 million.
Both banks have enjoyed profits this year, with Bank of Lancaster reporting net income of $854,000 in the third quarter, adding to profit of $1.1 million in the first half of the year.
VCB through the first three quarters of the year posted a profit of $1.52 million.
The combination will create a branch network of 19 offices, including 11 from Bank of Lancaster and eight from VCB, with little territorial overlap.
Nine of those 19 are in the Richmond metro market and they hold nearly $300 million local deposits. That density in Richmond helped push the companies toward the idea of a centralized headquarters here, though they haven’t decided on an exact location.
“It wouldn’t make sense to be in Petersburg or Kilmarnock, and by being in Richmond we’ll be able to attract the talent that an $800 million bank is going to need,” Greene said.
Total headcount post-merger is not yet known, as there will be some job eliminations from duplicative roles.
The companies expect cost savings from the combination over time of $3.2 million, about $1 million will come from a reduced headcount.
Still, Scott said the deal “offers what we felt was the greatest opportunity for our employees going forward.”
They mulled over what to do with the brand of the combined bank, but said that going with Virginia Commonwealth Bank was one of the easier decisions in the deal process.
“Obviously (VCB’s) name is much better for a regional bank than one particular county,” Greene said.
The deal also brings together two longtime Virginia banks.
VCB was formed in 1936 by Scott’s grandfather as First Federal Savings and Loan. Scott then took the reins from his father, who had run the bank for nearly 50 years. It formed its stock holding company structure in the 1980s and then the Virginia Commonwealth Bank name was adopted in 2008, when the bank switched to a state charter.
Bank of Lancaster was founded in Kilmarnock in 1930. It formed its holding company in the 1990s and expanded into Richmond in a few years ago, it’s first venture outside it Northern Neck home turf.
Greene and Scott aid keeping their faces around is important to help maintain the business they’ve built in their respective territories.
“We have No. 1 market share in the Northern Neck,” Greene said. “We don’t want to lose a customer through this transaction. Frank feels the same way.”
The deal already received unanimous approval from the boards of both companies. A green light from shareholders on both sides and from state and federal regulators is still needed.
The closing date is pegged for April 3.
Bay Banks enlisted FIG Partners as its financial advisor in the deal and Williams Mullen as its legal advisor.
Virginia BanCorp has Performance Trust Capital Partners as its financial advisor in the deal and LeClairRyan handling the legal side.